If you ask anyone who ever set foot on the floor of the New York Mercantile Exchange, they’ll tell you it was a place unlike any other. The screaming and yelling, the energy, the epic fights and the epic friendships. While we all competed against each other on a daily basis, we also had each other’s backs. Fortunes were made one day and lost the next, then made again. When the opening bell rang, it was like being in the Super Bowl every day.

I began as a runner on the CME Group floor in 1986. I was fresh out of Syracuse University and making $3.75 an hour. The education and experience was life-changing. When I moved back to New York, I traded gold and then crude oil in NYMEX’s crude oil pit. It was just after the Gulf War and oil was going crazy. So was the floor. Arms were swinging, bodies were flying and adrenaline was raging. I’d never seen anything like it and probably never will.

While the CME Group announcement that they will be closing the pits July is hard for all of us to take, it’s only the final of many nails in the coffin that began in 2006. That was when the NYMEX board voted to allow electronically-traded physically-settled energy contracts to be traded side by side with the open-cry pit markets. Previously, NYMEX ACCESS offered electronic trading but it was only available after-hours. Before this, the only time the electronic market was open during the day was a few days after the Sept. 11 attacks – NYMEX needed to settle the markets before the weekend.

I voted against electronic trading for a variety of reasons, including my concern that the market conditions were moving faster than the learning curve of the Commodity Futures Trading Commission and the regulators, who didn’t understand the new markets they were trying to enforce.

I remember when someone on the board said it would help the floor by making the WTI floor and WTI electronic contracts fungible, I laughed and replied that this would kill the floor within six months. Sadly, I was correct. It happened in the first 18 months.

After NYMEX placed their contracts online, seat leases dropped rapidly from $25,000 to $1,000 a month. Everyone knew their time on the floor was now finite. CME’s news about closing the floor isn’t surprising to anyone and will only affect a handful of people. The decision to launch electronic trading in 2006 and 2007 had life-changing consequences for thousands of people, but many have since moved on.

So who has taken the place of the floor market makers?

High Frequency Trading (HFT) trading stepped in. While there has been extremely bad press about the HFT traders (I was one of the biggest haters of the people who took my place), even I have to acknowledge that without them, there wouldn’t be a market or liquidity to trade off of.

If you slow down HFT to a snail’s pace, you’d find they do exactly what the floor traders did. The floor traders fought for location, the best traders were often the fastest and we all took advantage of the markets in efficiency. It’s pretty much the same for HFT.

Most people aren’t aware how traders got their spots in the pit and just how valuable their position was. There were crucial advantages in standing on the top steps, standing next to certain brokers, having phones lines closer to the pit and seeing the TV’s on the floor. It was all about having information and order flow, which is what allows today’s top HFT to succeed.

The closing of the gold and crude oil pits could worsen the issue of painting the tape (manipulating prices by both buying and selling) by large trading houses to help their positions or hurt traders that can’t bully the market. This has happened and will be a major issue for the settlement of back months. The front month is a weighted average and shouldn’t be affected.

The open access that has been given to funds that never traded energy or only traded as financial instruments has caused harm to the public on a supply and demand basis.

When the floor was open, access was limited, and used for hedging more then speculative trading. This latest massive selloff in energy proves the point that speculation is alive and well, and controlling the market. The world’s supply and demand didn’t change that drastically for a contract in crude when the front month came off over 40% in six weeks. This massive speculation is enabled by the ease of access to funds into the electronic market.

The days of trying to get across the floor and through the phone wires by doing limbo poses, of being so tight in the pit that I had to throw my trading sheets over my head behind me for my clerk to figure out my position and have him try to stick his arm back in the pit to give it to me, feeling the rush and power of being a floor trader – these days are long gone.

Long gone but not forgotten. Even when all we hear now are the clicks of the keyboard and funky sounds announcing a trade has gone off, we can always look back and remembers how great is was. And if you ask any of us if we missed it, we’d reply “EVERY DAY!!”

Trading Tip #3 – When You Hear the Word “Hope”

Take if from me – THERE IS NO HOPE IN TRADING. I tell this to every one of my executive coaching clients. If you keep thinking, “I hope it goes up” or “I hope it goes down,” then get out NOW. It’s not working. Do yourself a favor. Get flat and take another look at the market. Hope is on a date with an old friend of mine and trust me, it is not going well.

I know too many traders who are concerned about being flat and missing part of the trades. Don’t be. You can always get back in. No one catches every part of a trade. Being flat is the best and sometimes only way to think clearly, even if just for a moment.

How many of you have been crushed in a down move by hoping the market would go back up or telling yourself the market has to bounce? One of the most essential lessons you’ll learn is that the market doesn’t have to do anything. No one is bigger or smarter than the market, and if you think you are, in time you will be carried out like so many traders before you.

Yes, there will be times that you get out of a trade and the moment you do, the market will then go your way. Don’t waste your time getting upset. I have a lecture named “Screwing Up and How to Deal with It,” in which I explain this is not only for traders, but also for everyone – because the simple and true fact is that everyone screws up.

When I traded on the floor, nearly 60% of my trades were bad trades. I could have sat on my butt and beat myself up but if I did, I would have missed many more good trades.

So, if you get out and the market goes your way, don’t spend more then a second getting fired up. Just take a deep breath and step back in. You’ve learned an important lesson and now you can move on.

Trading Tip #7 Never Trade in Pain

This trading tip is meant more for the day traders and people who trade their own money. I understand the traders that trade for banks or funds are probably not going to be able to walk in their boss’ office and say “I’m not in the mood to trade today” or “I’m in pain today, and I think it’s better for me to stay flat for the day.”

In previous posts, I’ve often mentioned how trading for humans is based on pain and pleasure as well as fear and greed. Over the years of watching hundreds of traders, as well as my own personal experience, it became clear that there was a definite connection between their losing streaks or erratic profit and loss swings and things going on in their lives. When I would see these signs, I knew it was time to sit down with them and see what was happening in their personal lives.

The issue is that trading in pain, whether mental or physical, interrupts the normal, yet needed, pain and pleasure response that ensures traders will perform at the highest level. Distractions in trading can be costly.

After I would spot a trader who was having issues, I would normally have them meet me in my office a few floors above the trading floor. I found that it was far enough away to have them focused on the conversation, and yet close enough that if the markets had a major movement we could both run down to the trading floor get through the web of phones cords and push ourselves back into our spots without missing too much of the action. (Yes, as you can tell, I still miss the rush) Back to the point – I would sit that trader down and explain how I have noticed the pattern in their trading accounts. Most of these traders just cleared their trades through us, and we had no financial interest in their account. They knew that we had a genuine interest in them, personally, and we were not solely focused on how much commissions we were charging them. (How many clearing houses would tell their clients to take a few days off?) Most of the time, they had no issue opening up with me. I had the reputation that whatever was said in my office stays in my office. We all know that in trading, and especially on the trading floors, trust was everything.

I’ve always found that the traders who had been consistently making money and would suddenly have shifts in their pattern would always have something more to their story than just what was going on in the market. I can’t tell you the amount of times, after long conversations with the traders, I would uncover either an issue at home with their wives or their children, some type of physical pain from an injury, or that they were just burnt out from the normal wear and tear of being a pit trader.

I remember one day when a friend of mine called me and asked why I was not at work. I told him I wasn’t feeling well and he made a comment about how that was no excuse and how staying home was the easy way out. I explained to him in great detail how while he is at work sitting behind a desk writing reports if he made an error it would have most likely not have cost him a great deal of money. I also asked if he could check his work at the end of the day and fix the issue. He said, “sure, why not?” I laughed and explained that, in trading, you definitely do not have the chance to go back and fix your mistakes. The market waits for no one.

Traders need to know that if you are not focused, light on your feet, and 100% mentally alert, it can cost you – and quickly!

My clerk had standing instructions that if he saw me trading flat-footed (and I simply mean just like an athlete who walks onto a field and you can tell that he’s flat or not focused) that he had the authority to literally pull me by my collar and get me out of the pit. There were too many times that we have learned, while looking back at the day’s events, that something had been on my mind and I was flat footed entering the pit. Those were the days the losses hurt the most. All traders can say there are days they got hurt by a position, but overall traded well for the day. But getting your butt kicked on a day your not focused for whatever reason, and ignoring the signs, just makes it worse.

There are exceptions to this rule, which I have now become one of. As someone who suffers from chronic pain due to a medical issue. I either had the choice to stop trading altogether or alter my trading habits. I ended up altering my trading habits by cutting down my volume, using an older style of trading which I will talk about in my future Trading Tips, Trading Styles.

My advice to traders, from the smallest to the largest, markets move faster than they have in the past. It is not always about what you make – many times it’s about what you don’t give back. On the days you are not focused, for whatever reason, do not push it. The markets will be around tomorrow. It is better to take a day off than it is to get crushed.

* For the bank and fund traders. Since you might be trading someone’s money that is reading this blog. As hard as it might be to walk into the main office and tell them you’re taking it easy for the day, remember that when you lose on a day you were not 100%, it just cost someone else money that they worked very hard for. As someone who only trades their own money – tell your boss they should respect their clients money as their own, and ask them if they want you to trade their personal money on a day that you are sick or in pain. Let us all know what their answer is.

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Trading Tip #4 – Being Able to Admit When You’re Wrong

I remember the last conversation with my ex-wife just before we started the divorce. I sat her down, looked into her eyes and I said, “I’ve spoken to all the mathematicians, and it is theoretically impossible for me to be wrong every time.”

As a trader, one thing I know I am good at and have no issues with is admitting when I’m wrong and then changing direction quickly. It is an essential quality for being successful.

Being right is overrated. I would rather be wrong and profitable than try to prove I am always right and be a bad trader. After managing hundreds of traders and trading for over 22 years, I have seen that the one trait that’s most important for being a good (or great) trader is the ability to know you’re wrong and take action quickly.

In reality, being wrong is not a major issue. The most important aspect is what you decide to do afterwards. I’ve always taught my traders, as well as my executive coaching clients, that pain and pleasure can be the key towards a successful career. The biggest issue that many traders have is the inability to admit they are wrong. The truth is that on the trading floor, 60% to 70% of our trades each day were bad trades. What we learned to do was cut our losses and ride our winners.

There are too many people, in both business and in trading, that I’ve seen destroy what could have been a lucrative career simply because they were either too arrogant or too insecure. These were people who would do whatever it took to prove to others how right they were instead of quickly changing their course of action and redirecting their thoughts and energy to a more profitable outcome.

Odd as it may sound, I ended up making more money in trading when I was wrong than when I did was right. This was due to the fact that when I realized I was wrong I could quickly reverse my position or get out and cut my losses.

Let me give you an example: There were times I would be long five lots of crude oil (5000 thousand barrels of oil, which seems impressive but is not). If I was long five lots of crude oil at $95.10 and sold it at $95.11, I made $50 on the transaction. Let’s assume I am long five lots of crude oil at $95.10. The market starts drifting lower – $95.09, $95.08, $95.05, then $95.02 – and I start feeling the pain of a losing trade. I begin feeling that I am wrong, so I hit a 50 lot bid at $95. I go from being long five lots of crude oil to being short 45 lots (45000 barrels ).

The market trades at $94.99, then $94.95. At $94.90, I buy back ten lots, then at $94.88 another ten lots. The market bounces back and I cover the remaining 25 contracts at $95.00. The five lots I was originally long were enough to show me that I wrong and it was time to get out and reverse and follow the trade through the other side. I lost $500 on the first five contracts I was long, but I ended up making $2,200 on the 45 lots I was short, earning $1,700.

There are many times that, instead of just admitting that it’s a bad trade, the trader does what I feel is one of the worst things that can be done – they add to the losing position. There can be false justifications in the traders mind for doing this. He might say to himself, “There is support” or “The market has to go back up.” And we all know there is NO hope in trading.

The real issue in adding to losing positions is that many times, it works. People use dollar cost averages, and if this works six out of ten times then the trader might feel that it is worth it in the long run. Trust me, it’s not.

Take, for example, Trader 2 initializing a long position in Apple at $690, just after 9/19/12 when Apple settled at $702.10. There are analysts on the financial news networks and blogs saying how Apple is expected to go to $1000 in the near future. The market rallies over $700 and slowly starts drifting lower, then it gaps lower to $678. The trader continues to add to his initial buys at $690, convinced that the he is right and that this is just a minor correction in the market. He says to himself, “The market always comes back.” Apple continues to drop to $500, at which point this trader could have made the trade that ended his career.

So, the key to this trading tip is straightforward. Stay light on your toes so you are always able to get in and out of positions with out mental stress. Never stay married to a bad position and, as I spoke about it in Trading Tip #1, leave your ego at the door. Trade within your own size, and be able to admit when you’re wrong quickly, get flat or reverse. I have said, and will continue to say, in my trading and business blogs, that being flat is often the best position. It is the one and only position that you lets you look at the market from both sides realistically, honestly, and without prejudice.

Remember you can always get back into a trade. No traders are perfect, so don’t try to be.

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Trading Tip #8 – Recovering After Getting Your Butt Kicked.

The day after getting your butt kicked can be one of the most important trading days of your career. I am not talking about the normal, or slightly above normal, butt kicking. I am talking about one of those days that you just got hammered for whatever reason. Maybe you were stubborn, thinking “the market has to come back.” Maybe you added to a bad position and it just kept going against you. Maybe you said, “I Hope” and she wasn’t around to hear you scream her name. Or maybe, like me, you got caught on the wrong side of a world news event driven market, and the market gapped against you.

For this example I will use 1991, the night of Gulf War One, according to Saddam Hussein – it was going to be the mother of all battles. On the night of January 17, 1991, I went home long 7 contracts of crude oil -7000 barrels (sounds bigger than it was, it’s a small position). News came out that the air war of Operation Desert Storm had started.

I called my uncle, who was trading energy for AIG, and he told me that crude oil was up $8. I couldn’t believe it. I was up $56,000 on the trade. Okay, what does this have to do with getting your butt kicked? Read on …

In 1991, there was no electronic market in the energy’s and the floor traders did not have the ability to sell in the OTC market . Over the next few hours, I kept getting calls from my uncle, who was able to trade the OTC cash market, and he was telling me, “David, we are selling everything we can $7 higher.” Then $6, then $4, then $3. Then I got the call, “David, we are trying to sell everything we can at unchanged.” I was still a young, new trader, but I was smart enough to understand what that meant. I said, “Thank you for your update but please don’t call me again, I’ll talk to you in the morning.”

The next morning I heard that the mother of all battles ended up being the mother of all duds. Iraq’s army didn’t get one plane off the ground, and no missiles were even launched, let alone reached the oil fields. When I got to the trading floor, the market was limit down $7.50, and the market was trading a dollar lower in the cash market.

The crude market had a $16 swing overnight. When the market opened, I was down – down the $56,000 I thought I had been up the previous night. This was a key moment in my career. The first thing that can go through a trader’s mind is “I have to make it back.” WRONG. There is no making it back. It’s gone.

A trader must think of each trade as a new trade, and think of each day as a new day. Looking back will get you nowhere.

After getting your butt kicked, the first thing a good trader needs to do is calm down. Even if it means walking away from the trading desk for a moment. Or, if needed, walking away for a day or two in order to start thinking clearly again. The amount of time needed to recover mentally will depend on the person. There is no set amount of time, whatever it takes is fine.

Then, when the trader comes back, they should cut their volume and start chipping it out to gain back their confidence. As @theenegerytrader and I spoke about, this could take some time. The effects of a really severe butt kicking last longer than the day it happened in. It tends to change your view of the market, and more importantly, your confidence. If you’re thinking of taking a swing at the market, you need to consider that, if you are wrong, it will cost you more than just the day. I have seen it take some traders weeks to get back to the normal form.

The real question is What happens to the traders who do not take the proper steps and time to get back into their normal trading patterns? Those are the traders, both big and small, who end up “getting carried out,” as we used to say on the trading floor.

As I said in Trading Tip #1 – Leave Your Ego at the Door – this is also important after a big loss. If you feel you have something to prove to yourself, your friends or your company – think again. Be careful of being part of statistic that might end your trading career.

After a big loss:

Do not try to make it back. It’s gone. It’s a new day.

Walk away and clear your head.

When you start trading again – cut your size.

Get some winning trades on your pad.

Chip it out. Do small trades with some profit. As time passes, you will regain your confidence and work your way back to your normal volume.

If you get hit again, take a day or two off and do something totally unrelated to trading – do not look at the markets.

While you are taking some time off – do not second guess yourself. You would not have been correct on every move so don’t listen to your own BS.

While taking time off, do not worry about missing moves in the market. From the time the markets were first traded, you missed many moves. In the future, there will always be more to catch.

Always remember never risk the mother lode – always be able to come back.

When you come back read again from #1.

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(New York, NY – October 3, 2014) David Greenberg joins the Board of Directors of the 9/11 Tribute Center and September 11th Families Association. After Mr. Greenberg lost a number of friends and colleagues on 9/11, he was back to work on 9/13 at the New York Mercantile Exchange. As a member of the NYMEX Board, he was able to help the exchange get back into operation in one week. It was the only building in the WTC area to be open during the first few months. NYMEX brought over 1,000 people in by ferry to operate and keep the market open. Mr. Greenberg volunteers at the 9/11 Tribute Center to remember his lost friends. In his spare time, he gives motivational talks to young people at major universities on leadership and personal money management.

In a statement today, Mr. Greenberg said, “My service on the board is to honor my friends, members and staff from the New York Mercantile Exchange and the New York Board of Trade who were lost and for all who helped in the recovery and rebuilding effort.”

Mr. Greenberg, founder of Greenberg Capital and former President of Sterling Commodities LLC, has over 25 years of experience in private investments, finance and global markets. He offers leadership, financial, and corporate and personal money management services to companies, academic institutions, private clients and professional sports organizations. Throughout his career, Mr. Greenberg has appeared on numerous media outlets including CNN, Fox Business News, Bloomberg and CNBC. He is frequently interviewed on world market events.

Mr. Greenberg has been a guest lecturer for the finance program at West Point Military Academy, Columbia Business School, the Jack Welch Experience at Sacred Heart University, the Whitman School of Management at Syracuse University and Hofstra University. In addition, he has taught a course on the transition to electronic trading at the Museum of American Finance. Mr. Greenberg is currently lecturing on personal money management, focusing on topics such as “Living Below Your Personal Financial Radar” and “The Art of Saving to Ensure a Sound Financial Future for You and Your Family.”

About the 9/11Tribute Center

The 9/11 Tribute Center is a visitor center opened in 2006 by the September 11th Families Association, a not-for-profit corporation. 9/11 Tribute Center offers visitors to the World Trade Center a place where they can connect with people from the 9/11 community: family members of lost loved ones, survivors, first responders and people who live and work in Lower Manhattan. Through walking tours, exhibits and programs, the 9/11 Tribute Center offers “Person to Person History,” linking visitors who want to understand and appreciate the historic events with those who experienced them. Visitors learn factual information about the events, the identity of 2,973 people killed in the attacks, the unprecedented rescue and recovery operations and the tremendous spirit of support and generosity that arose after the attacks. Personal gallery and walking tour experiences are available for student and group visits. Learn more about 9/11 Tribute Center programs, visit www.tributewtc.org.

]]>http://www.greenbergcapital.com/david-greenberg-joins-911-tribute-center-board-of-directors/feed/09/11 – A Time to Remember, A Time to Helphttp://www.greenbergcapital.com/911-a-time-to-remember-a-time-to-help/
http://www.greenbergcapital.com/911-a-time-to-remember-a-time-to-help/#commentsWed, 10 Sep 2014 20:53:59 +0000http://greenbergcapital.com.s151956.gridserver.com/?p=205Share

As the news coverage fades out please remember and please help those affected by September 11. I was in 9/11 and lost so many friends and co-workers, and as an uncle of a retired Army Ranger who is in chronic pain from injuries obtained in action, I am asking you to support a great cause.

The 3rd Annual Pike Hike to Ground Zero will take place on Saturday, September 14. The 17-mile hike will begin in Fort Lee, New Jersey and end at the Ground Zero Memorial.

This group of people was too young to feel the full impact of that tragic day as well as the pain felt from the troops coming back, but they’ve stepped out over the past few years to create a fundraising event to remember the victims of 9/11 and help wounded solders.

Please take a moment and look at this video and hit the link to the website. This is a great cause and close to the heart of all Americans. No matter how small, please take the time to donate and show your support.

Once again there are a handful of open positions at the Commodities Futures Trading Commission (CFTC). First Jill Sommers, then Gary Gensler and now Bart Chilton are leaving. This agency’s mandate is to regulate commodity futures and options markets in the United States. Unfortunately, it is being run by people who have never traded commodities, run a clearinghouse for commodities or sat on an exchange board.

There is something inherently wrong with this thought process. It would be like me sitting on the medical practices board. Although I am sure that all the people on the CFTC have IRAs and other brokerage accounts, that doesn’t make them experts, just like having health issues doesn’t put me in a position to regulate doctors.

What does this mean when people with so little trading experience run an agency? Simply a replay of the past. Clearinghouses and financial services firms such as Refco, MGF and PFG have collapsed as a result of faulty oversight by the very agency pledged to oversee them. It will happen again.

There is a false sense of safety about swaps and derivatives being traded and cleared on exchanges. Brokers believe they can trust the contract, but having a settlement price doesn’t guarantee safety and liquidity. Many derivatives are lightly traded once established, so when a major world event happens many of the swaps will not have the volume to unwind the positions. If this occurs, it will make the unwinding of the Lehman derivatives look simple.

With the addition of cleared swaps now trading as well as lightning-fast trading technology, the CFTC has its work cut out for them. The agency has not kept up with the pace of the changing markets.

For example, the commodities clearing system is not as strong as it once was. With the fall of MFG, the days of having many large clearinghouses (the backbone of the CME Group clearing system) are gone. The big banks that trade have found ways to limit their exposure to the exchanges if a blow up should happen in the energy or bond markets, but investors of all levels will feel the pain.

The commodities cleared swaps are going to be the next too big to fail crisis, and with the lack of risk management experience at the CFTC, it is going to be a major shock to the global trading community.

President Obama ran on a platform of change. It’s time for real changes today. A large number of top brass is planning to leave the CFTC. Now is the time to replace them with competent, experienced personnel who understand the commodities market. People who will ensure a safer future for the American public.

Is now really the time for change? Okay, then let’s have some.

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On August 23, the Wall Street Journal wrote an article titled “Regulator Moves on Trading.” While it was very well written, it didn’t give any background information on why the CFTC is so behind on addressing electronic trading issues.

The CFTC has a long history of being late to the party on a majority of major issues, while being reactionary on issues that have cost hundreds of millions to the trading community. Unfortunately, in Washington many fingers are pointed and no one ever seems to be held accountable.

In 2012, CFTC Commissioner Scott O’Malia gave a speech at New York University’s Law School. He said that he was putting together a committee to learn about high frequency trading (HFT) and that until he had time to learn about it he could not comment on the good and bad points. He also acknowledged that commission oversight had not kept pace with electronic trading.

I gave him a ride up to Penn Station. During our trip, I told him that I was happy he was looking into this but asked why the CFTC was so late to the party, considering the flash crash had happened a few years before. He didn’t have an answer. This was also during the MF Global meltdown, which was another major failure of the CFTC. The commission did not handle this in an efficient way, and cost many traders their livelihood, which is an entirely different topic that I would be happy to speak about.
In full disclosure, during our trip to Penn Station, we did speak about how he would like me on the HFT subcommittee. I told him there would be some people that would not want someone with my background on the committee. I traded for 22 years, was president of a local clearinghouse for 13 years, sat on the NYMEX board for seven years and was on the Executive Committee for a year. I understood what the issues were, which is why some people would not have wanted the risk of having me on board. It was not surprising that when the names of the members of the subcommittee came out, I was not on it.

If you look into the background of three out of four of the commissioners, you will see that they do not have trading, clearing or exchange experience. They are all government appointees. As much as I personally like Scott O’Malia, growing up on a small farm doesn’t make you a commodities expert. It’s a scary reality that the regulators have no experience with the products they are regulating.

Go to www.CFTC.gov and read the bio’s of the commissioners yourself. With energy being one of the biggest products traded on exchanges, there is not one commissioner with an energy trading background. I also find it interesting that the one commissioner that does have a strong finance background, Gary Gensler, is the only official who stepped away from the MF Global collapse, stating he was too close to Corzine. After Corzine got off, it came out that Gensler was not that close and should never have been taken off the issue.

As I’ve stated in the past, for the future health and safety of the commodities industry, the CFTC needs to be rebuilt with people that truly understand the markets and exchanges. Right now it’s filled with lawyers who only understand how to write rules and regulations. How can you make regulations for something you have never done?

When I was a board member and trader at NYMEX, I used to feel like banging my head against the wall when I would see the CFTC come in and blow the easy cases and settle others. They never asked the right people the right questions and weren’t feared or respected. I have offered my help many times to Scott O’Malia and Bart Chilton (See CNBC interview).

Crude Oil Speculation

After every major commodity event that has experienced major press, Washington and the CFTC have made a statement they are going after energy speculators. For example, a few years ago moments before President Obama announced the release of the SPR, crude had a massive sudden selloff. Washington announced that it was time to go after the speculators and that they were going to look into who had gotten the information beforehand.

I sent an email to Commissioner Chilton telling him that this was an easy fix that they could actually do something about to find out what happened – get in touch with the Chicago Mercantile Exchange (CME) and ask for the info from their electronic trading platform, CME GLOBEX. The data would show who put the orders in, the time, price and where they cleared. An answer would have been given immediately. There was never any follow though or announcement about what the outcome was.

For the record, I have warned the CFTC that the cleared swaps will be an issue with the exchanges. On many of the swaps there is no volume and a settlement price is just a given price at a given time. I was a member of the NYMEX board when the ClearPort Trading system was put into place (and it wasn’t put into place for the reasons people think and in time there will be issues). While clearing systems are strong, since so many clearing houses have gone out of business the system is not as secure as it once was. The CFTC not only needs to concentrate on the trading community, but make sure all exchange clearing systems and price dissemination are safe from companies, countries and individuals that seek it harm (data terrorism).

I believe the next “Too Big to Fail” will come from the commodities cleared derivatives market. In years to come when they have a cleared swap blowup and they say they’re going to look into it, you heard it here first. To prevent this from happening, the CFTC needs to get more staff with trading and clearing experience on board. Otherwise, they will keep making the same mistakes they’ve made in the past.

I’d like to see a strong CFTC that watches out for the trading community it oversees. I’m hopeful that Washington is finally turning the corner and the new rules that the commission is coming out with will finally be effective.

Click here to watch my CNBC interview regarding the CFTC and the issues they face. You can also view Commissioner O’Malia’s speech here.

Since June, we have all either seen them, had them or worked alongside them. Interns, fresh from college and looking to gain experience and networking connections in the big city. But what did they really learn this summer?

My son and stepdaughter both interned this summer. My son’s internship started a few months ago, when his employer sent him books to study. He ended up reading four books on finance and woke up early to read five newspapers before commuting on the 6:50 train to New York. His paid internship was in the financial markets.

On the other hand, my stepdaughter’s public relations internship was unpaid (yes, unpaid. This was an intriguing topic between the two of them at the dinner table). She worked every day from 9 to 6 for a firm that was energetic and interesting to say the least.
I also had an intern. Many people are put in the position of hiring their friends’ kids for the summer. I was not planning on having an intern or being placed in this position as I had been in the past. But when a kid from your alma mater seeks you out, taking an initiative to look you up, contact you and really stay on your case about an internship, you give him one.

Sure, at times he was just as bored as any intern, but I was impressed with how he adapted after I changed the entire direction of the internship. He ended up taking it upon himself to ask questions and step into an area that he had no idea would be something that would interest him, making his internship something more then I had planned.

I spent the summer teaching the interns of the hedge fund Skybridge Capital, as well as giving a keynote speech and money management lecture to a crowd of 600 people. I spent the most time with the Skybridge interns, kids from schools such as Harvard, Tufts and other top universities. They were extremely bright and easy to lecture to. We talked about their workday and what they needed to do to succeed in the workforce. We also toured the Museum of American Finance and NYMEX. I wanted to give them a firsthand view of how the trading floor had once been a thriving, crazy and exciting place and was now an empty shell of its former self.

I know that all kids in internships deal with the occasional boredom and adjusting to getting up early to commute every day. It’s not easy, especially when you’re doing it for free. While each intern worked in a different field of interest, they all learned not just what it’s like to work in the real world but how to adapt to it emotionally and professionally. They often don’t even realize how much they absorb, from the responsibility of being at work each day on time to dealing with mid to upper level management.

Some company employees are just happy to have someone get their coffee and dry cleaning, while others do want the interns to get the most of their experience. One of the most important lessons students realize is that life is not always what they think it will be and that the worst day at school can beat most days working for someone else. They also learn how being a big shot in school, on a team or in the Greek system means very little when walking through the doors of an office.

And then there is the one intern that reminds us to be careful how we treat them. Years ago in Chicago, an intern’s boss treated him terribly. One day he was ordered to get the guy’s Porsche washed. He came back and told us how he hit a pole. Someone asked what happened. He said, “I am not sure. The pole just jumped in front of the car.” Then he smiled, went upstairs and quit.

I think the real value of internships are the untold lessons. A short taste of the world as it really is. So if your son or daughter said they were bored or didn’t learn a lot, just nod and realize they learned more in the last six weeks than the past year of going to class and parties. There is very little that can teach as much as real life in the real world and they will all be smarter, wiser and enjoy school more then ever before.

And as for me, what did I learn from the interns? That it’s great to be young!